The Dividend Investor. Rodney Hobson
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reference to Table 2.3, some notes follow on each column.
1. Results announced
We can see first of all that there was a gap of more than a month between the first and the last results announcement. Larger companies tend to produce results more quickly than smaller ones as they have a larger and more experienced financial staff.
Each company tends to produce its results on pretty much the same day each year, give or take a week, so we should not worry unduly unless results fail to appear at the normal time. As a general principle, any delay in producing results is likely to be because of particularly bad news.
2. Ex-dividend
The second date shows when the companies go ex-dividend (often abbreviated to ex-div). Buy before this date and you are entitled to the dividend that has been announced. Buy on or after this date and you are not entitled to the dividend.
The ex-dividend date is always a Wednesday. While in theory it could be any day of the week, there is some advantage to investors in knowing that the cut-off point is always the moment that trading closes on Tuesday evening. After that it is too late to buy for the latest payout.
While several newspapers publish each Monday a list of companies due to announce results in the coming week, a comprehensive list of those going ex-div is not so readily available. You will probably find that the Reuters website is the most convenient way to check. Access to this page is free.
http://uk.reuters.com/business/markets/dividends
On the day that shares go ex-dividend the share price will usually fall by roughly the same amount as the dividend to reflect the fact that new share buyers will not receive the dividend.
Table 2.4 shows three companies from different sectors that all went ex-dividend on 17 August 2011.
Table 2.4 – Sample of share price moves when companies go ex-dividend
Source: Company announcements
The FTSE Index fell 30 points on that day, about half of 1%, after a weak opening so we would have expected shares going ex dividend to lose slightly more than the amount of the dividend.
We can see that all three shares opened lowed than we would have expected, all things being equal – that is, they all fell by more than the dividend to which share buyers were no longer entitled. This reflected weak stock market conditions. Pearson and Prudential continued to give ground during the day although BAT began to buck the trend, recovering just 1p during the course of the trading day.
3. Date on register
Dividends are sent to those who appear on the share register on this date, which always falls on a Friday two days after the ex-div date to allow time for the register to be updated with all deals done cum dividend.
Do not worry if you buy or sell shares on the Wednesday or Thursday. The share registrar will know whether shares have been bought or sold cum or ex dividend.
If you bought cum (with) the dividend you are entitled to it; if you bought ex (without) then it is not yours but if this worries you, just do not buy or sell shares around the ex-dividend date.
The date on register is always Friday for historical reasons. The London Stock Exchange used to have two-week settlement periods. On alternate Fridays all the deals of the previous two weeks were processed. So all deals done cum dividend were processed on the Friday and shareholders entitled to the dividend were on the register that day.
With the arrival of electronic trading all deals are now settled and processed in two days. The Friday register day has remained but the ex-dividend date has moved closer to it to allow for the shorter settlement and processing period.
4. Dividend paid
You may think that there is absolutely no reason why the cheques or transfers cannot go out first thing Monday morning, and you would be quite right, but alas there is further delay before you get the money that is rightfully yours.
The company arbitrarily sets a date on which the dividend is actually paid. As with all the other dates in this equation, the interval can vary considerably.
For instance, although Cookson takes a full two months to announce its annual results and a further two-and-a-half months to go ex-dividend, its dividend payment date is just two-and-a-half weeks later. BAT can get its results out in less than two months and goes ex- dividend only two weeks later but it takes nearly two months to actually shell out.
There is no logical reason why any company should delay the payment of dividends once they are announced. Those that do so tend to be somewhat defensive if you raise the issue.
They normally argue that as long as the dividends come round at regular intervals, that is all that matters to shareholders. The company is making good use of the money in the meantime, they say.
Once we finally reach the dividend paid date, it can still take a few days before your money is actually in your bank account, even in this electronic age.
There are two methods of payment: through the Bankers’ Automated Clearing Services (BACS) system, where you are paid automatically into your bank or stockbroking account, or by cheque.
You may have no choice in the payment method. Most accounts and virtually all online accounts are arranged so that dividends are transmitted into your stockbroking account by BACS and, if you have asked for the cash to come to your own bank account, will be transmitted onwards by your broker, also by BACS.
Check with your broker when you set up your account what the payment method will be.
There are several advantages of being paid by BACS:
The dividend is transmitted from the registrar on the payment date and should appear in your own bank or stockbroking account within a couple of days.
There is no chance of the payment being delayed in the post.
You do not have to wait for a cheque to clear.
This payment method is more secure than receiving a cheque through the post.
If you move house, payments will not be directed to your old address.
How time flies
All in all, there can be a considerable delay between a company’s financial year end and the day when the dividend is actually in your account. The time difference can vary enormously. Among our examples, Shell pays fairly quickly but even so it is nearly three months after year end and seven weeks after results are announced before the cash reaches your account. This is about as fast as it gets.
Cookson pays a full five months after year end and three months after the results announcement; for Menzies the gap is nearly six months from year end.
5. The AGM
Finally, we note the varying attitudes towards the AGM. Shell and HSBC do not even bother to wait for shareholder approval before making the final payment for the year. In an exercise in semantics, they call the final dividend the ‘fourth interim dividend’, so technically there is no final dividend for shareholders to approve.
BAT goes for a halfway house, with the AGM after the ex-dividend date – like Shell and HSBC – but before the payment date. BAT asks shareholders to approve the report and accounts without specific reference to the dividend.
Cookson and John Menzies both seek approval from shareholders before the ex-dividend date and both have a resolution to approve the final dividend on the AGM agenda.